Imagine if you could’ve bought the keys to the Internet in 1994! A tectonic shift at the intersection of finance & technology approaches, where the very fabric of the global capital markets are being transformed at the atomic level for the first time since the advent of fungible currency is enabling such and opportunity now. Smart contract and the blockchain allow the creation of global P2P capital markets. Purchasing Veritas tokens is analogous to purchasing the keys to the most monumental paradigm shift since the advent of the Internet!

Will someone explain to me why the world is so enamored with Goldman. It appears that their research department is now recommending clients to bet on European bank contagion risk. LTTP (Late to the Party), we first warned on European bank risk in Spain with BBVA in January of last year (The Spanish Inquisition is About to Begin...). Starting in January of this year, I went in depth into the European contagion thing when practically all of the banks, pundits, analysts and rating agencies said this was contained to Greece.

Banks are the epicenter of the economic crises that face the developed and emerging nations over the last few years. Many appear to have allowed the media to carry the conversation away from the banks and into sovereign debt issues, social unrest etc., but the main issue still resides in the banks. Why, you ask? Well, because every single major country conducts its finances through the banks and when those finances become stressed, the banks will be the first to show it and usually show it in an aggrieved manner since most banks are still highly leveraged.

The larger sovereign nations are at risk of either having to bailout their less fortunate brethren or facing the fallout of having the repercussions of a domino effect reverberate across the EU and its major markets/counterparties. This goes deeper than some may suspect. For instance, the weakest sovereigns in the Euro area are still the central and eastern European nations, and the stronger sovereigns are heavily leveraged into these countries through their “overbanked” system. If (or when) these companies start to publicly exhibit cracks, quite possibly due to the domino effect of Portugal, Greece and Spain finally tipping, then you will find the Nordics showing stress through their banking system (the biggest CEE lenders) at a level that the countries may be hard pressed to backstop, for their banking systems are literally multiples of their GDPs.

Okay, come latter day April (a full 3 and a half months later), and I read over at ZeroHedge...

Goldman's Charles Himmelberg has just reiterrated his call for Long CDS on local banks in Portugal, Spain and Italy, hedged by selling Main (iTraxx) protection. It is our view that as accounts plough into this trade and as bank spreads blow out, it will only accelerate the funding complexities, the bank runs and the inevitable collapse of the financial systems in all of the other imparied peripheral countries, ultimately leading to the collapse of the EMU. Will Goldman be accused next of destroying Europe? Stay tuned.

... With total debt around €265bn, they believe Greece is not out of the woods yet. The Greek government faces a financing gap of about €51bn during the next 12 months, and will need to enact strong fiscal tightening (up to 10% of GDP) and new reforms to re-establish growth.

... High unemployment, decreasing house prices and poor to capital markets are likely to continue to challenge firms in southern Europe, where corporate bonds are only around 7% of GDP (compared to 14% in the rest of Europe and 28% in the US). Local banks, which used to rely on a stable deposit base, will face increased competition from larger players, who are willing to diversify away from bond funding. They will also face new regulatory charges over the coming months. While we remain positive on financials as a whole, we think the local southern European banks will continue to underperform.

For these reasons, we re-iterate our recommendation to buy protection on local banks in Portugal, Spain and Italy against iTraxx Main (Exhibit 13).

4 comments

Goldman has the ability to overpay their employees thanks to their monopoly status in may markets. Combine this with thier superb, "Steve Jobs-esque" markeing ability and it is obvious why the uninformed would want to work for them. The questions is, how long can they keep up the charade?

Are they really late to the party or have they just shown up in the middle? I think most of us here certainly believe the real fun has not even started yet. Although, considering the recent confirmation that they do take bets against clients, it's possible they have been playing this on the short side all along, and have just now let clients in on the action.

Either way, it's all semantics. I can't understand why the kids I go to school with wet their pants at the idea of working at Goldman and I probably never will. Specifically, I can recall their advice on the FX markets going long EUR and GBP getting stopped out on three or four different occasions, all in the past three months.

Believe it or not, I am not trying to come across as a braggart. I am actually dumbfounded that so many actually believe that Goldman is best of breed. It is not. It is a well run bank, but its employees are the same as everyone else's, just paid off of a higher revenue base. That revenue base is derived from a monopoly status and political edge that most competitors do not have.

As a matter of fact, I know for a fact that Morgan Stanley has taken several of Goldman's sales force at the MD level, which Goldman could have prevented but chose not to.

I have rarely ran up against Goldman and come out lacking in a level playing field. Alas, the world in general is not level, is it? As long as everyone realizes it is the unleveled playing field that gives Goldman the edge and not necessarily superior talent, I will remain rant-free :-)

BTW, I am going to try to beta run the pay per view payment system next week.

Goldman's best-in-class research is often just best-in-class marketing. I mean if you look at their whole BRICs and N11 research do they nowhere indicate that population is the most important factor by far. In fact, my kid cut put together a list of countries to invest based upon people and come up with the same list.